Long-term life cycle mutual funds get Sebi approval

MUMBAI: Retail investors looking for a simpler way to plan for long-term goals such as retirement and children’s education may soon have some easier options. Markets regulator Sebi on Thursday allowed fund houses to launch life cycle funds.

Life cycle funds are open-ended schemes designed around a target maturity date and a pre-set asset allocation glide path.

In simple terms, they invest more in equities when the goal is several years down the line and gradually shift toward debt and other low-risk assets as the maturity date approaches, aiming to reduce risk over time.

For retail investors, life cycle funds could act as a ‘set-and-forget’ investment option, especially for those unsure how to rebalance portfolios over time, a Sebi circular said.

National Pension System, regulated by the Pension Fund Regulatory & Development Authority, allows investors to invest in life cycle funds.

The regulatory nod for life cycle funds came as part of Sebi’s move to recategorise and reorganise various mutual fund schemes. In some cases, the regulator has addressed the issue of portfolio overlap like value and contra funds managed by the same fund house.

The Sebi circular said that these funds could have life spans of at least five years at launch and at most 30 years, with five-year intervals. Fund houses may keep up to six such schemes open for subscription at a time, Sebi said. As a scheme nears maturity, it can be merged with a similar one with investor consent, it said.

To encourage long-term discipline, the regulator has also prescribed exit loads of up to 3% for early withdrawals within three years of investment. The Sebi move “appears to be one toward more structured, goal-oriented investing with transparent asset allocation frameworks and consistent investment mandates,” said Aditya Agarwal, co-founder, Wealthy.in, a wealth management platform for MF distributors. These options are aligned with global best practices, he said.

The key feature of a life cycle fund is the glide path, Sebi said. For example, a 30-year life cycle fund may invest 65–95% in equities when more than 15 years are remaining. The same scheme may cut its equity exposure to as low as 5–20% when less than a year is remaining.

As equity investments slide, debt allocations rise correspondingly. For life cycle funds, the regulator also capped exposure to gold, silver ETFs, InvITs and exchange-traded commodity derivatives at 10%.